Box rates & demand
Spot market box freight rates continue to decline. We have just witnessed the fifth consecutive weekly decline in the average composite rate from its peak, which took place on 18 July at US$5,937 for a forty foot box. The composite rate now stands at US$5,319, according to the Drewry World Container Index. That’s a 10.41% decrease.
Rates from Shanghai to Genoa were down 5%, rates from Rotterdam to New Yok were down 1% and rates from Shanghai to New York were up 1% to stand at US$8,811 for a forty-footer. A looming strike on the US waterfront, likely to take place in early October, is being cited as the cause of the uptick as shippers rush to get goods to the US before the strike begins, Drewry explains. Analyst Linerlytica added that freight rates are “under pressure” on both the Asia-Europe and the Transpacific routes, noting that there will likely be a push for a September rate hike. The main driver for the slide appears to be declining capacity utilisation i.e. there is more capacity now on the main routes.
Disruption
No, not the Red Sea security situation (although that is underpinning much of the market dynamics at the moment), but, rather, North America.
In the Land of Maple Syrup (Canada), the major Canadian railways have announced that they have shut down their rail networks. Workers represented by the Teamsters union have been locked out. Freight benchmarking platform, Xeneta, reports that Canada relies heavily on rail transport which accounts for about 14% of bilateral trade between the US and Canada. Shipments of grain, potash, coal, petroleum, chemicals, and automobiles will be hit. It is expected that cargo throughput via Canadian ports will be affected; vessel numbers at the Port of Vancouver have already dropped, trade media have reported. It is expected that containerships will divert to alternative ports. That’s going to mean more capacity taken out of the system as ships sail longer distances and as those ports become busier they will likely start experiencing congestion.
Meanwhile, the North American labour union, the International Longshoremen’s Association, looks like it is about to have its members walk off the job when the master contract expires on 30 September. Terms and conditions, and new technology, are at the heart of the dispute. It has been reported in the trade media that the head of the ILA has stated that the union will not enter into discussions about extending the current contract nor is the union apparently interested in any intervention by outside agencies.
Shipping Australia data suggests that North America accounts for about 6.5% of Australia’s full container trade (i.e. excluding empties); that’s about 6.2% of our box imports and about 6.7% of our box imports.
Meanwhile, there is the potential for significant disruption in India as ports there also face a dockworker strike across 12 ports. This dispute has been running for about three years. Notices have been issued to various port authorities and related government bodies, trade media has reported. The union is reportedly seeking boosts to wages, productivity-linked enhancements, and festival bonus entitlements. Shipping Australia data suggests that Southern Asia (which includes India) accounts for about 4.1% of our full box trade; that’s about 7.3% of our export box trade and 2.5% of our box import trade.
Just to put that in context, the full North America & India box trades to and from Australia together amount to about 10.6% of our total box trade while the full box trade to and from Europe (which has been severely disrupted by the Red Sea security situation) is about 11% of our box trade.
Demand
Logistics software provider Flexport reports that TEPB cargo (Transpacific east-bound… i.e. Asia to North America) volumes remain strong, supported by extra capacity allocated to the trade lane. Noting that there is now “healthy inventory” in the US, Flexport suggest that it anticipates a potential softening in demand. on the Asia Europe, Flexport reports that demand is stabilising and ship utilisation remains solid. The strength in demand of recent months has generally been attributed to shippers rushing to get cargo into the U.S. so as to avoid deadlines for tariffs and potential tariffs, and also to beat the onset of potential logistics-related strikes (see earlier comments about industrial action in North America).
Supply
Good news for shippers is that 2024 is expected to record the “second highest” volume for dry freight container production, according to Drewry, which follows hot on the heels of a huge output of dry boxes and reefer boxes in July. Manufacturers are reporting full orderbooks for weeks ahead, Drewry says. Such volumes will go at least some way to counteract the reduced availability of boxes caused by higher demand.
Orders for new ships continue to flood into the orderbooks of shipbuilders. Pacific International Lines has ordered five new box ships, each with 13,000 TEU capacity, and they will have dual-fuel (LNG/low sulphur diesel) engines. Due for delivery from end-2026 onwards, the ships will also incorporate a range of energy saving technologies including an optimised hull-form, variable-frequency drive motors for large pumps, low-energy LED lights and premium hull coatings. Meanwhile, PIL is currently already building four vessels of 14,000 TEU and four vessels of 8,200 TEU. The first two ships of 14,000 TEU are due for delivery later this year. Another big buyer is Wan Hai with 12 to 16 ships of 8,000 TEU and another four ships of 8,700. RCL also has orders for three new boxships of 7,000 TEU each.